Economy Set 1 MCQs

Economy GK

Economy Set 1 MCQs

Practice Economy GK MCQs on basic economic concepts including economy, economics, microeconomics, macroeconomics, goods and services, demand and supply, factors of production, opportunity cost, economic activities, sectors of economy and other fundamental concepts frequently asked in SSC, Railway, Banking, UPSC, JKSSB, JKPSC, Police, Defence and other competitive examinations.

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Practice Questions

Page 45 of 111
Question #881
A monopolist maximizes profit at the level of output where:
A. MR = MC
B. AR = AC
C. AC is minimum
D. MC = AR
Discuss
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Correct Answer: Option A

Explanation:
A monopolist maximizes profit by producing where marginal revenue equals marginal cost.
This question belongs to: Economy GK Economy Set 1
Question #882
Under monopoly, price in equilibrium is typically:
A. equal to marginal cost
B. greater than marginal cost
C. zero
D. less than marginal cost
Discuss
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Correct Answer: Option B

Explanation:
A monopolist charges a price greater than marginal cost and earns supernormal profit.
This question belongs to: Economy GK Economy Set 1
Question #883
First-degree price discrimination occurs when a monopolist:
A. charges each consumer the maximum price they are willing to pay
B. charges different prices in different markets
C. charges a single uniform price
D. sells in bulk at a lower price
Discuss
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Correct Answer: Option A

Explanation:
First-degree price discrimination, also called perfect price discrimination, charges each consumer their maximum willingness to pay.
This question belongs to: Economy GK Economy Set 1
Question #884
Excess capacity is a characteristic feature of which market structure?
A. Pure competition
B. Perfect competition
C. Monopolistic competition
D. Monopoly
Discuss
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Correct Answer: Option C

Explanation:
Firms in monopolistic competition produce below optimum capacity, leading to excess capacity.
This question belongs to: Economy GK Economy Set 1
Question #885
A cartel is an example of:
A. monopolistic competition
B. non-collusive oligopoly
C. perfect competition
D. collusive oligopoly
Discuss
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Correct Answer: Option D

Explanation:
A cartel is a formal collusive arrangement among oligopolistic firms to fix prices and output.
This question belongs to: Economy GK Economy Set 1
Question #886
A monopsony is a market situation with:
A. a single seller
B. a single buyer
C. many buyers and sellers
D. two sellers
Discuss
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Correct Answer: Option B

Explanation:
A monopsony is a market structure in which there is only one buyer of a good or service.
This question belongs to: Economy GK Economy Set 1
Question #887
A price ceiling set below the equilibrium price generally results in:
A. shortage
B. surplus
C. equilibrium
D. increase in supply
Discuss
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Correct Answer: Option A

Explanation:
A price ceiling below equilibrium creates excess demand or a shortage.
This question belongs to: Economy GK Economy Set 1
Question #888
A price floor set above the equilibrium price generally creates:
A. surplus
B. increase in demand
C. shortage
D. no change
Discuss
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Correct Answer: Option A

Explanation:
A price floor above equilibrium creates excess supply or a surplus.
This question belongs to: Economy GK Economy Set 1
Question #889
Deadweight loss in economics refers to:
A. loss suffered by a monopolist
B. depreciation of capital
C. loss of revenue to the government
D. loss of total welfare due to market inefficiency
Discuss
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Correct Answer: Option D

Explanation:
Deadweight loss is the loss of economic welfare due to inefficiency such as taxes, price controls or monopoly.
This question belongs to: Economy GK Economy Set 1
Question #890
The free-rider problem is associated with:
A. common resources
B. public goods
C. club goods
D. private goods
Discuss
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Correct Answer: Option B

Explanation:
Public goods are non-excludable, so individuals can benefit without paying, creating the free-rider problem.
This question belongs to: Economy GK Economy Set 1
Question #891
A negative externality occurs when:
A. social cost exceeds private cost
B. social benefit exceeds private benefit
C. private cost exceeds social cost
D. private benefit equals social benefit
Discuss
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Correct Answer: Option A

Explanation:
A negative externality arises when social cost exceeds private cost, e.g. pollution.
This question belongs to: Economy GK Economy Set 1
Question #892
The Coase theorem suggests that private bargaining can solve externality problems if:
A. the market is monopolized
B. transaction costs are high and property rights are unclear
C. the government imposes taxes
D. transaction costs are low and property rights are clearly defined
Discuss
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Correct Answer: Option D

Explanation:
The Coase theorem states that with low transaction costs and clearly defined property rights, private parties can resolve externalities.
This question belongs to: Economy GK Economy Set 1
Question #893
A Pigouvian tax is imposed to:
A. encourage production of positive externality goods
B. increase imports
C. internalize the external cost of a negative externality
D. reduce government revenue
Discuss
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Correct Answer: Option C

Explanation:
A Pigouvian tax is levied to make producers internalize the external cost of negative externalities.
This question belongs to: Economy GK Economy Set 1
Question #894
Marginal revenue product of labour is calculated as:
A. MP of labour multiplied by marginal revenue
B. AP of labour divided by wage
C. marginal cost divided by output
D. total product multiplied by wage
Discuss
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Correct Answer: Option A

Explanation:
Marginal revenue product of labour equals marginal product of labour multiplied by marginal revenue.
This question belongs to: Economy GK Economy Set 1
Question #895
Economic rent is the payment to a factor of production:
A. above its transfer earnings
B. below its transfer earnings
C. equal to its transfer earnings
D. equal to zero
Discuss
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Correct Answer: Option A

Explanation:
Economic rent is the surplus paid to a factor over and above its transfer earnings.
This question belongs to: Economy GK Economy Set 1
Question #896
Quasi-rent is associated with:
A. labour only
B. fixed factors in the short run
C. land in the long run
D. money supply
Discuss
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Correct Answer: Option B

Explanation:
Quasi-rent is the short-run return to a fixed factor of production.
This question belongs to: Economy GK Economy Set 1
Question #897
Human capital refers to:
A. natural resources
B. the stock of skills, education and health embodied in workers
C. financial assets of a country
D. physical machinery used in production
Discuss
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Correct Answer: Option B

Explanation:
Human capital is the stock of skills, education and health embodied in workers that enhances productivity.
This question belongs to: Economy GK Economy Set 1
Question #898
In the circular flow of income, leakages include:
A. investment and exports
B. income and output
C. saving, taxes and imports
D. consumption and government spending
Discuss
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Correct Answer: Option C

Explanation:
Leakages from the circular flow are saving, taxes and imports.
This question belongs to: Economy GK Economy Set 1
Question #899
In the circular flow of income, injections include:
A. wages and rent
B. consumption and saving
C. investment, government expenditure and exports
D. saving, taxes and imports
Discuss
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Correct Answer: Option C

Explanation:
Injections into the circular flow are investment, government expenditure and exports.
This question belongs to: Economy GK Economy Set 1
Question #900
In an open economy, aggregate demand is given by:
A. C + S + T
B. C + I - G
C. I + G + M
D. C + I + G + (X - M)
Discuss
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Correct Answer: Option D

Explanation:
In an open economy, aggregate demand is C + I + G + (X - M).
This question belongs to: Economy GK Economy Set 1
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